Companies considering accessing the capital markets before year-end should take a closer look at a few new accounting rules that may require attention beforehand.

Staff at the Securities and Exchange Commission recently told the Center for Audit Quality’s SEC Regulations Committee where it would and would not expect companies to do some lookback adjustments to financial statements based on new accounting rules when accessing capital using Form S-3. “This is the kind of issue that tends to come up each year as more often the Financial Accounting Standards Board is adopting standards requiring retrospective effect in historical financial statements,” says Chris Holmes, chair of the SEC Regulations Committee and national director of SEC matters at Ernst & Young.

When companies are accessing capital using Form S-3, they are required to include restated financial statements when there’s been a change in accounting principles that require a material retroactive restatement of financial statements. So the SEC Regulations Committee asked the SEC staff to offer its views on how companies would be expected to handle a few recent pronouncements.

Specifically, the SEC staff looked at Financial Accounting Standard No. 160, Noncontrolling Interests in Consolidated Financial Statements, FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion, and FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. They each require retrospective application in financial statements for earlier periods, raising questions about the financial statement requirements in a company’s SEC registration statements that may become effective after the first quarterly filing but before the first annual filing.

In the case of FAS 160 and FSP APB 14-1, the SEC staff told the SEC Regulations Committee if a company were filing a Form S-3, the accompanying financial statements would need to be restated to reflect the effects of those new accounting rules. In the case of EITF 03-06-1, however, the SEC staff told the Regs Committee companies could follow an accommodation that would not require restated financials. Instead, companies would need to disclose earnings-per-share revised to reflect the effect of the pronouncement, but with “full, robust disclosure” regarding the implications, accord to CAQ’s alert on the guidance.

Holmes says ordinarily the retrospective effect of new accounting principles would be required when filing Form S-3, but occasionally the staff makes an exception, as with the recent view on EITF 03-06-1. Where the retrospective effects are likely to be pervasive, says Holmes, the SEC staff is not typically inclined to make such accommodations.

The effect of adopting FAS 160 in particular is likely to be pervasive, says Holmes. “All companies are facing the ultimate need to revise financial statements” in adopting FAS 160, Holmes says. “If they’re doing it to raise capital, it just accelerates that process.”

Companies tend not to get that process started any earlier than necessary, he says, but if they’re planning to access capital before year-end, they’ll need to consider the effects of FAS 160 and FSP APB 14-1 that much sooner. “This may catch a lot of people off guard,” he says.